What do you do if you have the money to pay your mortgage, but your property is so severely underwater that you don’t believe it will get right side up for 20 years or more?

Strategic default is one of those topics that always seems to raise hackles in real estate conversation.

While strategic defaults are perfectly legal and a recognized business strategy, they provoke great consternation among homeowners and real estate professionals who believe that those borrowers who opt for a strategic default are somehow morally bankrupt, or don’t care about the real estate valuation problems they’re exacerbating for others in the neighborhood.

Whether or not you are a fan of strategic default, the numbers of folks walking away from severely underwater homes appears to be growing, especially in markets where the number of foreclosures is increasing and home prices are dropping rapidly.

According to a new survey by FICO, 46 percent of risk professionals surveyed expect the number of borrowers choosing strategic default to increase in 2012 over 2011.

And almost half of all homeowners with a mortgage say they would walk away from their home if home values continue to fall, according to an online poll from Housing Predictor.

The risk with a strategic default is that the lender would chase you to pay off the deficiency. And, you’ll have a significant hit on your credit. But if this is the right choice for you, then make it – with your eyes wide open. And in some states, the lender’s only recourse against you is to sell the home and use the proceeds to satisfy the amount owed, but the lender can’t go after you for the deficiency.

What are your thoughts on a strategic default strategy? Do you ever advise it?

Updating...

Homeowners who owe more than their home is worth may be receiving some help from the Federal Housing Finance Agency (FHFA).

A recent speech by Edward DeMarco, acting director of the FHFA, alluded to the possibility of implementing write-downs for underwater homeowners.

The idea stems from the findings of an FHFA study which showed that Fannie Mae and Freddie Mac could save up to $1.7 billion if principal deductions were used. Since 2008, FHFA has been the conservator of Fannie Mae and Freddie Mac.

DeMarco has long been opposed to write-downs and he and the FHFA want to make it clear that this is not about attempting to bail out the housing market.

“The anticipated benefit of principal forgiveness is that, by reducing foreclosures relative to other modification types, [Fannie and Freddie's] losses would be lowered and house prices would stabilize faster, thereby producing broader benefits to all market participants,” DeMarco said in his speech Tuesday.

Currently, there are about 11 million underwater homeowners and if this initiative were implemented, less than one million households will benefit. Thus, while it may provide relief for homeowners who are eligible for principal reductions, it will not affect the vast majority of underwater homeowners.

For more details on these write-downs read my full article on CBSNews.com.

Do you think that this initiative will significantly help the economy as whole?

Is the housing news we’re getting good?

That’s the question the New York Times asked in an editorial this week. And if you look at some of the press releases that have been issued recently, you might think that the housing market has indeed turned the corner.

The National Association of Realtors announced that pending home sales (homes that are under contract but have not yet sold), reached a two-year high and existing home sales beat expectations (which, truthfully, were not very high at all).

Mortgage interest rates, according to the weekly Freddie Mac survey, are at or near an all-time low.

On the other hand, the number of people actually applying for a purchase mortgage is extremely low as well. It’s tough getting approved for one of these super-low interest rate mortgages.

According to the Standard & Poor’s/Case-Shiller housing price index, home values fell 4 percent nationally. Home prices nationally have now been rolled back to where they were in 2002, although it feels more like the late 1990s in Atlanta, where home prices fell nearly 13 percent last year.

And new home sales, which have helped lead the way out of countless recessions since World War II, remain at an all-time low. Home builders aren’t building that many more homes and selling even fewer of them, as supply continues to outpace demand.

What about foreclosures? Nearly 25 percent of all existing homes in the most recent quarter sold were foreclosures and Moody’s Analytics says there are 3.3 million homes currently in foreclosure. Another 11.5 million could fall into foreclosures if the economy worsens again.

And then there is the government’s response to the housing crisis. Thus far, the various Making Home Affordable programs haven’t done much to help the housing market form a bottom, let alone cure the problem.

This week, Federal Housing Administration announced it would reduce costs for a streamline refinance for those homeowners who have FHA loans. The problem many borrowers are having is that the increased loan origination and refinancing fees mean it’s difficult for lenders to “prove” that a borrower will save money on a refinance. Strict rules prohibit lenders from refinancing a borrower who won’t save money. The same announcement offered extra help to servicemembers and veterans who are trying to refinance or who were wrongly foreclosed on.

Based on all of these announcements, if you were in the business of making a housing market prediction, would you be forecasting good real estate news?

Perhaps not yet. But the real estate community is so weary of its depression-like status, and so eager to prove that with a positive attitude anything can happen that the “good news” is being heavily promoted as the beginning of the turnaround.

The biggest problem is that the real estate industry isn’t like the stock market. You won’t see values bouncing back to new highs after just a few months, or even a few years. With some industry observers predicting another 5 to 10 percent drop in home values in 2012, it could be a decade or more before the real estate industry really recovers.

The federal government and 49 states have reached a landmark $25 billion foreclosure settlement with the nation’s five largest mortgage lenders, the Department of Justice announced Thursday (February 9th).

The joint agreement is the largest federal-state civil settlement ever obtained.
U.S. Attorney General Eric Holder, Department of Housing (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Mill and Colorado Attorney General John W. Suthers announced today the federal government and 49 states agreed to the deal, which has been in the works for more than a year.

“This agreement…is the result of unprecedented cooperation among enforcement agencies throughout the government,” Holder said in a release Thursday.

“It holds mortgage servicer companies accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will ensure the abuses of the past are not repeated.”

The joint federal-state agreement requires mortgage lenders to implement new mortgage loan servicing standards and to commit billions of dollars to resolve violations of state and federal law, including robo-signing, deceptive practices used in loan modifications, failure to offer non-foreclosure alternatives before foreclosing on borrowers and filing improper court documentation upon bankruptcy or foreclosure.

The requirements of the agreement were laid out in Thursday’s press release and you can read them all here: http://www.thinkglink.com/2012/02/09/foreclosure-settlement-states-mortgage-lenders-totals-26b/

Resources:

For more information about the settlement, go to www.NationalMortgageSettlement.com. To find your state attorney general’s website, go to www.NAAG.org and click on “The Attorneys General.”

If you’re a homeowner and have questions about whether you qualify for a loan modification or refinancing under the Home Affordable Refinance Program (also known as HARP 2.0), contact the Homeowner’s HOPE hotline at 1-888-995-HOPE or go to MakingHomeAffordable.gov.

Just one week after President Obama promised “no more red tape” for homeowners looking to refinance, there’s news that mortgage insurance giant Freddie Mac could benefit if banks stonewall their customers.

According to an investigation by NPR and ProPublica, the government-sponsored enterprise has spent billions betting homeowners won’t be able to refinance their high-rate mortgages — and taking some steps to make sure they’re right. While the investment arm of the company was profiting from homeowners with high-rate mortgages, Freddie was making it more difficult for those locked in high-interest mortgages to refinance to a lower rate.

Freddie and its larger cousin Fannie Mae have imposed new rules and regulations, and introduced new fees, effectively narrowing the number of borrowers who qualify for a Freddie-insured mortgage.

How is this possible?

The investigation suggests the investment arm is betting homeowners won’t be able to refinance, while the credit side is making sure lenders have enough money to make loans. The Federal Housing Financing Agency (FHFA) says a wall exists between the investment and credit sides of Freddie.
Read the full story on CBS Moneywatch: http://www.cbsnews.com/8301-505145_162-57368239/freddie-mac-accused-of-betting-against-homeowners/?tag=cbsnewsMainColumnArea

If you own a home, you might want to start thinking about the IRS. According to Julian Block, author of “The Home Sellers’ Guide to Tax Savings” (PassKey Publications, $19.95), there are ways to lighten your tax load whether you’re living in your home or selling it.

Here are some top home seller tax tips:

1. Marriage penalty? Not when you’re selling a home.

Getting married? Are you a newlywed? The IRS bestows a gift on newlyweds who each own homes that they sell before or after their trip down the aisle. On their joint return, each spouse can exclude as much as $250,000 of gain, provided each spouse could exclude up to $250,000 if he or she filed separately. Unfortunately, one spouse can’t use any part of the others unused exclusion, so as to exclude gain of more than $250,000 per person. (Individuals may exclude up to $250,000 in gain on their home sale and married couples may exclude up to $500,000 when they file jointly.)

2. Bundle ordinary repairs into a bigger job.

If you’re debating whether to save up for a major renovation but still have a few repairs around the house that need attention, think about bundling them together (if your repairs can wait). Block says your home’s adjusted basis (which consists of the property’s purchase price plus the cost of purchase, sale, structural improvements, legal fees paid to defend or to perfect title, zoning costs, and the cost of selling the property) includes only the cost of permanent improvements (including replacing a roof or building an addition) so it might pay to postpone repair projects until they can be done in connection with an extensive remodeling or restoration project. Adding the smaller jobs into the bigger job may allow you to include some items that would otherwise be considered repairs, such as the cost of painting rooms.

3. Don’t forget to deduct points paid when you financed or refinanced your mortgage.

When refinancing an existing mortgage, or if you pay off the loan early, take a deduction in the payoff year for all remaining points you were charged when you obtained the loan. For example, if you refinanced your mortgage and paid points in the amount of $2,000 and have deducted $400 over the years, you can deduct the balance of $1,600 in the tax return for the year in which you refinance the property. If you refinance, check on whether you need to increase or decrease the amount taken out for federal income taxes from your paychecks or to increase estimated payments. If you will need to pay more to the IRS, you should increase your withholding or quarterly estimated payments. And, if you will owe the IRS less, you can decrease those payments to the IRS. To revise your withholding, file a new Form W-4 with your employer.

4. It may make more sense to prepay your credit card debt – not your mortgage.

If you find you’ve got a little extra cash on hand at the end of the month, you might be thinking about throwing a few dollars toward paying off your mortgage. And why not? It would be great to own your home debt-free. But if you also have credit card debt, you should instead take those bucks and pay down your highest interest rate debt. For someone in the 30 percent tax bracket (federal and state), an investment would have to yield a whopping 26 percent before taxes to match the benefit available from just paying off a credit card costing 18 percent. And with mortgage interest rates near historic lows (this week, a 30-year fixed rate mortgage can be had for about 4.5 percent), paying off a credit card makes much better financial sense. And the tax tip: Mortgage and home equity interest is tax-deductible if you itemize on your federal income tax return.

There are other tax deductions and perks available for homeowners. In his book, which is available at Amazon, Block takes homeowners through foreclosure and short sale tax issues. And for more personalized information, consult with your tax preparer, accountant or enrolled agent.

I learned two interesting things this past weekend.

The first is that lightning can strike at any time and it can hit close to home. The second that you need to make sure your insurance policies are up to date and that you have the right insurance carrier to help you out.

Do you have insurance for Lightning Strikes? Would you be prepared if you had a total loss?

Early Saturday morning, we were awakened by a loud storm passing by. The lightning was fierce. At about 1:30 one strike felt like it hit near our home. I got out of bed and wandered around the home and looked out the windows to see if our home or any neighboring trees or properties had been hit. Lightning had not struck our immediate vicinity but had hit the house of a friend a couple of blocks away. The lightning missed the tall trees surrounding the home and hit the roof instead.

Luckily they were not home, but the lightning ignited the roof of the home and quickly spread throughout the home. By the time the fire department arrived at the home, the home was fully engulfed in flames. Not much was left of the home. The picture above is the actual picture of what’s left of the home.

In talking to my father, he recalled how all homes where he grew up had lighting rods. In our area, there is no requirement for lightning rods to be installed in old or new homes. Well, our friends found out the hard way what happens when lightning strikes a home.

While in hindsight, the following items might have helped minimize the loss, including a home sprinkler system, a monitored fire alarm system and, perhaps, a lightning rod, there are a couple of things a homeowner can do to help prepare for a possible disaster and assist in the recovery.

The first thing that you should have available at all times is a copy of your insurance policies. If you have had your insurance policy for some time, make sure that your homeowner’s insurance policy contains the declaration page along with the policy and all endorsements. You might like to know that insurance carriers frequently update and change their insurance policies and will add endorsements to your policy. However, these endorsements may come to you after you have received the policy and it will be up to you to have the policy and all endorsements stored in one place.

Many insurance carriers will give you online access to your policy and forms, but if your policy is several years old, you may have to request that the insurance carrier mail or email to you the current version of your insurance policy along with its endorsements.

A helpful list would be for you to have an inventory of everything you own. You can create a list of all of your worldly possessions and make sure you have it in a safe place. But, you can also to around your home taking pictures of everything you own.

If you decide to use a camera, don’t forget to open up cabinets, closets, storage bins and boxes to take pictures of those items as well. At least if you’ve taken pictures of everything, you will have an easier time remembering all of the things you owned and can prove that you had four sets of china along with a one hundred pairs of shoes or a jean collection.

If you’ve taken those pictures or have an inventory, make sure that the information is kept in a safe place you can retrieve if there is a disaster. It won’t do you too much good to put that back up disk or drive in your basement if you end up with a flood there. You may wish to keep multiple copies of your files in different locations that you may be able to access readily in the future.

If you have this information, you can at least talk to your insurance adjuster about all of items you lost in your home and can show evidence that you had those items there.

When you deal with insurance companies, make sure you’re working with a reputable insurance carrier with a good reputation in dealing with their customers after a disaster. If you pick the cheapest carrier, you may pay less in premiums but your first disaster may be compounded by a second when they fight you for what you might be entitled.

Once you choose an insurance carrier, make sure you have adequate coverage for your home and possessions. If you think it would cost you $300,000 to rebuild your home from scratch, don’t buy $250,000 in coverage to save some money. Frequently, homeowner’s underestimate the amount it will cost to rebuild a home and if it costs more than the amount you have covered under your policy you may be out of luck.

Some insurance agents will try to convince their customers that the insurance company’s policy will cover them for up to 125% of the policy amount. However, if you suffer a total loss, you may need that 25% additional coverage for other unexpected costs. And, if you are a collector of special items, make sure your insurance carrier knows that you collect antiques or other items that may have a high value and may not be covered under some policies.

If you have covered your home for the amount that it would take to rebuild it, make sure you keep up that amount from time to time, if the amount has not gone up in years, you may want to reevaluate whether you should increase the amount of coverage for your home.

Once you have covered the home, make sure the things you own inside of it are covered as well. If you have a total loss, do you have enough coverage under the policy to cover you for the televisions, games, jewelry, clothing, bedding, furniture and other items that you own? Make sure you have enough of this kind of coverage and that your policy will cover your expenses while you have to live somewhere else for up to two years.

These steps won’t eliminate the tears shed from the loss, but may minimize some of the hard work that you will have to go through trying to reconstruct your life after a big loss.

Do you have a story about an insurance loss you’ve had and the problems you went through with your insurance carrier? If you did, please leave a comment about what you went through with your insurance company and how you managed and solved it.

This week, the National Association of Realtors (NAR) sent a letter to Shaun Donovan, secretary of Housing and Urban Development, Timothy Geithner, secretary of the Treasury, and Gene Sperling, director of the National Economic Council.

In the letter, the Realtors put forth their belief that “Stability in the housing market will lead to a quicker and greater economic recovery. And, then NAR offered its recommendations to help stabilize and revitalize the housing industry and economy:

Proposal #1:

NAR urged support for policies that ensure qualified borrowers can obtain safe and sound mortgage financing. The non-profit trade organization called on regulators to revise the unnecessarily high down payment requirements of the Qualified Residential Mortgage (QRM) exemption from risk retention requirements under the Dodd-Frank Act.

In short, NAR believes that if Congress implements a firm requirement that you have to have a minimum 20 percent to put down on a conventional mortgage, that requirement would severely limit the number of people who could buy homes. That would tank home buyer demand, depress home prices further, and cause more foreclosures.

How long does it take someone who earns an average salary to save up 20 percent for a down payment? NAR says up to 14 years. To their point, it’s hard to even remember your American dream of homeownership after 14 years.

“Mortgage availability remains a concern, and borrowers continue to find it increasingly difficult to find affordable mortgage options. Requiring a higher down payment does little to reduce default risk, and only strips home buyers of their savings and increases the number of borrowers who are unable to purchase a home,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “We cannot have a viable housing market and economic recovery until creditworthy borrowers are able to obtain mortgage financing.”

Proposal #2:

NAR also asked regulators to reduce the overcorrection in underwriting standards for mortgages from the Federal Housing Administration (FHA) and government-sponsored enterprises because the now-too-stringent standards are preventing qualified borrowers from getting loans.

Phipps said more regulations and legislation that tighten access to credit and affordable safe mortgages are not the solution to righting the housing market and economy.

Proposal #3:

NAR also recommends extending the FHA, Fannie Mae and Freddie Mac (also known as the GSEs) mortgage loan limits, which are critical to providing liquidity in today’s housing market. Reverting to the statutory limits on October 1 would reduce limits in 669 counties and 42 states and territories – the average decline in loan limits will be more than $68,000.

NAR has argued that reducing the GSEs mortgage loan limits to $625,000 in high cost areas like San Francisco and New York, would severely limit the ability of people to buy homes in those area.

Proposal #4:

In its letter, NAR suggested Congress pass a long-term reauthorization of the National Flood Insurance Program. This program, which ensures access to affordable flood insurance for millions of homeowners has never had long-term funding, but with weather conditions and flood plains changing, NAR believes having a full-funded NFIP is essential to a properly functioning real estate market. The current program is set to expire on September 30 for the tenth time in two years. If Congress doesn’t extend the program, lenders will be unlikely to close on loans for properties that are in known flood plains.

“As the nation’s leading advocate for homeownership and housing issues, NAR understands how integral homeownership is to the nation’s economy. A strong housing market recovery is essential to the nation’s economic strength,” said Phipps. “The housing market is in a fragile recovery, and our goal is to ensure that regulatory or legislative changes help lead the way out of today’s economic struggles and not jeopardize the recovery.

Thinking about taking a vacation this summer? One of the hottest trends this year is taking advantage of a wealth of vacation home rental options. Before you make a decision about where to visit, educate yourself with TripAdvisor’s top ten U.S. summer vacation rental escapes.

1. Home on the waterfront

Pompano Beach, Florida

With a rental rate of $2,195 per week, this gorgeous Caribbean-influenced home offers plenty of perks. Lounge by the private pool, take a dip in the hot tub or sip frozen drinks at an authentic Tiki bar. Looking for something more upscale? Host an early dinner in the gourmet kitchen and follow it up with a party on the private yacht, complete with crew, which is available for reservations.

2. View of the Rockies

Breckenridge, Colorado

Spectacular views are one of the key selling points of this Breckenridge, Colorado vacation home. Available for $2,578 per week, the property is close to Breckenridge Golf Club and many other outdoor activities. The destination also offers top notch amenities, including a hot tub, big screen TV, full kitchen and gas grill for your enjoyment.

3. Island Paradise

Lahaina, Maui, Hawaii

This tropical escape, named “Endless Horizon,” offers stunning views of the Pacific Ocean and nearby Hawaiian islands. Located in Lahaina, Hawaii, this property is the perfect place to relax and enjoy the atmosphere. In addition to the view, the home also offers a gourmet kitchen, grill, jacuzzi and private pool. It can be yours from $1,000 to $1,350 per night.

4. Picturesque Cabin

Stowe, Vermont

Located in gorgeous Stowe, Vermont, Perry Hill Escape is a rustic log cabin with views of the nearby Mount Mansfield range. At a summer rate of $1,600 per week, this property makes a great base camp for a wide variety of outdoor activities. After a long day of hiking enjoy dining, shopping, and spa treatments available in the town center.

5. Mountain Magic

Pigeon Forge, Tennessee

At a summer rate of $270 to $390 per night, Magic Sunset in Pigeon Forge, Tennessee is a great escape. The property features beautiful views of the Great Smoky Mountains and is a good option for travelers looking to get back in touch with nature. The home includes amenities that range from a hot tub and outdoor grill to a game room with a pool table, air hockey table, video arcade and electronic dartboard.

6. Gulf Coast Gem

Marco Island, Florida

Located on Marco Island off the Gulf Coast of Florida, Nassau Ct can be yours for $1,750 per week. The property is situated on the waterfront and is equipped with a full kitchen, big screen TV, barbeque grill and private pool.

7. Hawaiian Home

Ha’ena, Kauai, Hawaii

Ha’ena Kai is a paradise for travelers looking for rest and relaxation. Offering panoramic views of the Pacific Ocean from its large common area, this home is just steps away from the beach. One of the best features? Each bedroom has access to the house’s wrap around deck. You can have a piece of this paradise for $3,000 per week.

8. Fun in the Forest

Blairsville, Georgia

This southern home is located in Blairsville, Georgia, and at $693 per week is one of the better values on the list. With more than 20 private acres of land and clear views of the Blue Ridge Mountain range, it may also be one of the more remote. Guests can make use of the campfire pit and picnic area outside, or hang out indoors and enjoy satellite TV, wireless Internet and a full-sized pool table.

9. Retreat on the Lake

South Lake Tahoe, California

Available for $250 to $475 per night, this South Lake Tahoe, California home is equipped for the entire family. It features a fully stocked game room, complete with a pool table and big screen HDTV. Prefer to be outside? Enjoy outdoor activities like fishing, hiking or horseback riding.

10. Scottsdale Escape

Scottsdale, Arizona

Casa Willow, in Scottsdale, Arizona, is available for $1,400 per week. The home is a pleasant reprieve from busy city life and offers a private salt-water pool, an eight person hot tub, built in barbeque grill and an outdoor pool table.

Each of the homes here features at least two bedrooms and availability in the months of June, July and August. Whether you’re interested in staying at a beachfront condo or a cabin in the mountains, one of these vacations rentals is sure to meet your needs.